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Posted Tue, 08 Nov 2022 21:43:43 GMT by Ethics Gradient
hmrc-internal-manuals/investment-funds/ifm13372 says "Where a participant receives an amount in respect of an interest in a reporting fund which is chargeable to tax as income but that amount is received (or treated as received) after the date of the disposal of the interest the amount is treated as received immediately before the disposal for the purposes of regulation 99." So for a reporting ETF, there is a 6 month period between the end of the accounting period (when the number of shares determines the Excess Reportable Income on which income tax must be paid) and the distribution date, when the income tax is payable, and if there was no sale at all, the ERI would be treated as another acquisition cost. If the entire holding is sold, the quoted paragraph clearly says the effective date for the acquisition cost would be moved to immediately before the disposal. But what if it is a partial disposal? Does "an interest" mean the investor has just one interest in the fund, which changes in size, but is still governed by "Sums treated as expenditure in this way are treated as incurred on the fund distribution date for the reporting period in respect of which the amount is treated as distributed"? Or do you say there are two "interests" - one which is the shares which are sold, and so has its the acquisition cost date moved to just before the disposal, and one which is the untouched shares, and which gets the acquisition cost at the usual distribution date? This makes a difference because in one scenario, the ERI, for capital gains purposes, is assigned purely to the untouched shares, and in the other, it is divided between the sold shares and the untouched shares. Which should we do?
Posted Fri, 25 Nov 2022 11:16:03 GMT by HMRC Admin 32

The guidance on reporting obligations below provides the answer.

IFM12624 - Offshore Funds: Reporting funds: reporting obligations: reports to participants

It states that the report sent or made available to investors of a reporting fund for each reporting period must include all of the following:
  1. the amount actually distributed to participants (i.e. all investors, which will include UK investors) per unit of interest in the fund in respect of the reporting period.
The important part here is the wording 'per unit of interest'.

A partial disposal is a disposal of an interest. The ERI would be divided between the sold shares and the untouched shares. For a reporting fund we would have thought that this split would have been provided. If it was not then a just and reasonable apportionment should be made.

Thank you.

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